Japan Trading Houses Knocking on Cubas Door Amid U.S. Opening

Japans largest trading houses are positioning themselves in Cuba before any easing of U.S. sanctions, seeking opportunities in infrastructure, resources and automobiles as the Caribbean nation emerges from near-isolation.

Mitsubishi Corp., the nations largest trader, opened an office this month in Havana and is currently researching potential business deals, according to a spokesman. Mitsui & Co. will open an office as soon as September and is considering exporting Cuban nickel, according to a spokesman. Marubeni Corp. expects the removal of sanctions to unleash pent-up demand for cars and industrial machines, and the company also plans to open an office, it said earlier this year.

President Barack Obama is seeking to normalize relations and establish closer ties with Cuba, signaling an end to five decades of sanctions that left the country starved of cash and little changed since Fidel Castros revolution in 1959. Moodys Investor Services expects Cuba to grow 3 percent in 2016. That would be a bright spot in Latin America, which is forecast to contract 1.4 percent this year, according to data compiled by Bloomberg.

First Movers

If there are opportunities, they would be the first ones to go in, said Polina Diyachkina, an analyst at Macquarie Group Ltd. who covers the Japanese trading houses. Its the job of trading companies to find new markets. Cuba has been closed for so many years and has been a market that has been very poor. There must be rich opportunities on the industrial side and infrastructure, as well as consumer products such as automobiles.

Profits at the companies known as sogo shosha hit record lows in the latest fiscal year on a drop in commodity prices. Mitsubishi and Mitsui reported their first ever annual losses due primarily to writedowns on energy and metal assets. Now they are strengthening non-resource business units including health care and consumer-goods manufacturing.

Mitsubishi is currently exporting coffee beans from island and will hire two Cuban nationals for the new office, a spokesman said Monday. The company supplies beans and coffee products, including soluble coffee and extract, to roasters and instant-coffee makers, according to the companys website.

Cuba Confidence

Trading houses are eyeing Cuba as Japans confidence in the rest of Latin America wanes. Business confidence of Japanese companies in Latin America fell last year due to the drop in oil prices and a worsening political environment, according to a government survey. That compares to 2011, when their confidence in the region exceeded that of India and China.

Switzerlands Nestle SA entered Cuba in 1996 and Brazils Odebrecht SA led the $1 billion expansion of the islands Mariel port. Meanwhile, many U.S. companies remain wary of investing in an economy hobbled by the trade embargo, restrictive labor laws and a currency system that uses a convertible and non-convertible peso. Only the U.S. Congress has the ability to remove the U.S. trade embargo with Cuba, and the Republican majority has blocked any attempt to do so.

Cuba is hoping to increase foreign direct investment and has set a target of $2.5 billion a year, according to Richard E. Feinberg, a professor at the University of California San Diego, who recently published a book on the new Cuban economy.

Trading companies are looking for emerging markets that can deliver growth significantly higher than the global average, said Tom OSullivan, founder of Tokyo-based consultant Mathyos. Cuba must be a possibility given the rapprochement with the U.S. and possible easing of sanctions.

Source: http://www.bloomberg.com/

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